By Gregory J. Wilcox
Home sales in Southern California hit their highest level in 15 years during July and the median price soared to a record $328,000, but rising interest rates could slow the market, according to two reports released Wednesday.
Last month, consumers from Ventura to San Diego counties bought 33,561 new and existing homes and condominiums, an annual increase of 9.6 percent and up 7 percent from June, said La Jolla-based DataQuick Information Systems. That's the most since September 1988, when there were 34,653 sales.
During the year's first seven months, there have been 200,160 home sales across Southern California, up from 198,502 in the year-ago period.
July's median price soared an annual 20.6 percent, gaining $56,000 over the past 12 months.
However, mortgage interest rates, which bottomed at 5.21 percent during the last week of July, have been rising steadily and now have gained more than a percentage point since then.
Rising rates didn't slow the market in July and it's not yet known what they will do to activity in August, said Marshall Prentice, DataQuick president.
"Sales could go down because of the higher interest rates or they could go as us fence-sitters jump into the market. It'll be interesting to see which of these factors is strongest," said Prentice.
Moderate slowing is already occurring, indicated the weekly national survey by the Washington, D.C.-based Mortgage Bankers Association of America.
Loan application volume for purchases and refinancing for the week ended Aug. 15 fell a seasonally adjusted 10.7 percent from the prior week and are down 33.9 percent from a year ago.
Part of the decline is attributed to the massive blackout in the Northeast, which shut down mortgage offices. But interest rates rose again, too, averaging 6.22 percent versus 6 percent a week earlier.
Purchase application volume fell 4.9 percent from the prior week.
The refinance market is taking the biggest hit from the rate run-up, falling 14.9 percent from the prior survey.
Activity has now fallen 72 percent from its peak, reached the week ending May 30, but it still accounts for more than 50 percent of loan application activity.
"Refinancing is at the same level it was in July 2002. The difference is (rates) were declining back then and they are increasing now," said Jay Brinkmann, the association's vice president of research and economics.
Last year at this time, rates were heading down to the 6 percent level from the low 7 percent range and were considered a bargain. So rates at their current range are still a good deal and won't likely drag down the purchase sector.
But there could be a cooling shrinkage in the price increases. In forecasting this year's markets, analysts said sales would lag behind last year's pace and that price gains would moderate from double-digit to single-digit gains.
That has not happened, but a slowdown is expected at some point.
It's not likely that the so-called real estate bubble will burst because of interest rates rising from their historic low, either. Unlike the dot-com stock market, driven by a price-to-fantasy ratio, Southern California's hot real estate market is rooted in strong fundamentals.
Supplies are tight and will remain so, and demand will remain strong. Nothing on the horizon suggests this will change, said Gary Painter, research director at the Lusk Center for Real Estate at the University of Southern California.
"Within L.A. County, the amount of housing being built is not keeping up with demand," he said.
So far, this interest rate increase has not brought any signs of distress to the market and none is expected short-term. Foreclosure rates are low, the size of down payments is stable and there have been no shifts in the market mix.
For example, DataQuick points out that the typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,442 in July, up from $1,314 for the previous month and up from $1,281 for July a year ago, DataQuick reported. The all-time peak was in May 1989 at $1,453. Indicators of market distress are still largely absent. Foreclosure rates are low, adjustable-rate mortgage usage is low, down payment sizes are stable and there have been no significant shifts in market mix, DataQuick reported. Nima Nattagh, an analyst for FNC, which tracks market trends for the mortgage industry, said the third quarter will probably provide a better indication of how the interest rate increase impacts sales and prices.
"I would still stick to the prediction that this year we are going to see a slowdown in the rate of appreciation in home values. With interest rates nudging up slightly, that trend may be accelerated," he said.